ASL Marine

OCBC on 21 Sept 2012

Announcement of QE3, while long-expected, has helped buoy sentiment across the board. However, amidst the rising tide, investors are well-advised to pick stocks that can stand the test of time. In the small-mid cap space, ASL Marine’s (ASL) diversified business model means it is positioned to capitalise on the recovering newbuild market (driven by offshore support vessels), while still being supported by its healthy shiprepair and chartering operations. Management has turned more positive but more importantly, we also expect the group to double its capex to about S$115m (mainly to expand shipcharter fleet and deepen waterfront) in FY13 compared to just S$67m in FY12. With an upside potential of about 27%, we maintain our BUY rating on the stock with S$0.82 fair value estimate.

Ahoy the rising tide, but pick the worthy ones
Announcement of QE3, while long-expected, has helped buoy sentiment across the board. However, amidst the rising tide, investors are well-advised to pick stocks that can stand the test of time, to avoid holding a stock that has been “swimming naked” when the tide goes out. In the small-mid cap space, ASL Marine (ASL) is positioned to capitalise on the recovering newbuild market (driven by offshore support vessels), while still being supported by its healthy shiprepair and chartering operations.

Group’s diversified business model has served it well
Unlike many other shipyards, ASL has a much more diversified business model – its shipbuilding, shiprepair & conversion as well as shipchartering segments have all been significant contributors to total gross profit. This has served it well over the years. Recall that new order flows dwindled after the 2008 credit crunch and yards that had a heavy dependence on shipbuilding operations were very much affected. Meanwhile, ASL weathered the crisis better than its peers partly due to its business model.

Turning more positive, in words and in action
Due to the difficult market environment, we had a Hold rating on the stock for the most of 2010 and 2011, during which the stock had a lackadaisical performance. With the gradual return of newbuild orders, ASL has also replenished its order book. We upgraded the stock to BUY in mid Feb this year due to the improving outlook, and the stock price has appreciated by about 18% ever since. Management has turned more positive but more importantly, we also expect the group to double its capex to about S$115m (mainly to expand shipcharter fleet and deepen waterfront) in FY13 compared to just S$67m in FY12. With an upside potential of about 27%, we maintain our BUY rating on the stock with S$0.82 fair value estimate.